Intermediate Microeconomics
Exam Practice Tests
Course Introduction
Intermediate Microeconomics explores the behavior of individuals and firms in various market structures, building on basic microeconomic principles. The course covers topics such as consumer choice, production and cost functions, market equilibrium, and the impact of government interventions. Students will analyze models of perfect competition, monopoly, oligopoly, and monopolistic competition, utilizing mathematical tools and graphical analysis to understand resource allocation, pricing mechanisms, and efficiency. The course is designed to deepen students' analytical skills and prepare them for advanced study and real-world application of economic theory.
Recommended Textbook Microeconomics 5th Edition by Glenn Hubbard
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Page 2
Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) If the marginal cost of keeping a doctor's office open one additional hour per day is $200,then the doctor should keep the office open for one extra hour
A) only if the marginal benefit she receives is greater than $200 plus an acceptable profit margin.
B) as long as the marginal benefit she receives is just equal to or greater than $200.
C) as long as the marginal cost does not rise.
D) until the marginal benefit she receives reaches zero.
Answer: B
Q2) What is an entrepreneur,and what decisions does an entrepreneur make in a market system?
Answer: An entrepreneur is someone who operates a business.In a market system,entrepreneurs decide what goods and services to produce and how to produce them.
Q3) What is voluntary exchange?
Answer: Voluntary exchange is a situation that occurs in markets when both the buyer and seller of a product are made better off by the transaction.
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Sample Questions
Q1) What is an entrepreneur?
Answer: An entrepreneur is someone who operates a business,bringing together the factors of production to produce goods and services.
Q2) Which of the following is a factor of production?
A) a necklace produced by a jewelry manufacturer
B) 50 shares of Google stock
C) the security guard at the local bank
D) $1,000 in casino chips
Answer: C
Q3) Refer to Figure 2-4.Consider the following events:
a.a reduction in the patent protection period to no more than 2 years
b.a war that destroys a substantial portion of a nation's capital stock
c.the lack of secure and enforceable property rights system
Which of the events listed above could cause a movement from W to V?
A) a only
B) a and b only
C) a and c only
D) b and c only
E) a, b, and c
Answer: C
Page 4
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) Assume that both the demand curve and the supply curve for MP3 players shift to the right but the supply curve shifts more than the demand curve.As a result
A) both the equilibrium price and quantity of MP3 players will decrease.
B) the equilibrium price of MP3 players will decrease; the equilibrium quantity will increase.
C) the equilibrium price of MP3 players may increase or decrease; the equilibrium quantity will decrease.
D) the equilibrium price of MP3 players will increase; the equilibrium quantity will decrease.
Answer: B
Q2) The substitution effect explains why there is a direct relationship between the price of a product and the quantity of the product demanded.
A)True
B)False
Answer: False
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Chapter 4: Economic Efficiency, government Price Setting, and Taxes
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Sample Questions
Q1) Refer to Table 4-4.If a minimum wage of $11.50 an hour is mandated,what is the quantity of labor demanded?
A) 40,000
B) 570,000
C) 610,000
D) 1,180,000
Q2) Producer surplus is the difference between the lowest price a firm is willing to accept for a product and the price it actually receives for the product.
A)True
B)False
Q3) A tax is efficient if it imposes a large excess burden relative to the tax revenue it raises.
A)True
B)False
Q4) What is the difference between scarcity and a shortage?
Q5) If the market price is at equilibrium,the producer surplus is minimized.
A)True
B)False
Q6) What do economists mean by an efficient tax?
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Chapter 5: Externalities, environmental Policy, and Public Goods
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Sample Questions
Q1) Which of the following displays rivalry and excludability in consumption?
A) public goods
B) private goods
C) quasi-public goods
D) common resources
Q2) Which of the following conditions holds in an economically efficient competitive market equilibrium?
A) The deadweight loss is positive but at a minimum.
B) Producer and consumer surplus are exactly equal in size.
C) There are no positive and no negative external effects from consumption and production.
D) The marginal benefit of the last unit produced and consumed is maximized.
Q3) An externality is an example of a market failure.
A)True
B)False
Q4) Which of the following is a source of market failure?
A) unforeseen circumstances which leads to the bankruptcy of many firms
B) a lack of government intervention in a market
C) incomplete property rights or inability to enforce property rights
D) an inequitable income distribution
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Chapter 6: Elasticity: The Responsiveness of Demand and Supply
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Sample Questions
Q1) In September 2012,the average price of gasoline in the United States was $3.91 per gallon and consumers bought 5 percent less gasoline than they had during September 2011,when the average price was $3.66 per gallon.Based on these numbers,what was the price elasticity of demand for gasoline from September 2011 to September 2012?
A) -0.33
B) -0.76
C) -2.96
D) -6.75
Q2) Refer to Table 6-6.
a.Using the information in the table,calculate the income elasticity of demand for good X and characterize the good.Use the midpoint formula.
b.Can you calculate the income elasticity of demand for good Y? If you can,show your calculation and characterize the good.If you cannot,explain why.
Q3) Most food products have low income and price elasticities of demand.
A)True
B)False
Q4) What does price elasticity of demand measure? When is demand elastic? Inelastic? Unit elastic?
Page 8
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Chapter 7: The Economics of Health Care
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Sample Questions
Q1) What is an externality? Explain how someone receiving a meningitis vaccination is an example of an externality in the market for health care.
Q2) In markets with asymmetric information
A) moral hazard causes adverse selection which in turn causes asymmetric information.
B) adverse selection causes moral hazard which in turn causes asymmetric information. C) asymmetric information causes moral hazard and then it causes adverse selection.
D) asymmetric information causes adverse selection and then it causes moral hazard.
Q3) Better health allows people to work harder,which raises a country's total income.This indicates that in effect,better health
A) is a primary cause of price increases.
B) reduces the incentive to work.
C) shifts out a country's production possibilities frontier.
D) increases consumer surplus.
Q4) What are the main sources of health insurance in the United States?
Q5) What is moral hazard?
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) If you purchase a share of stock from your friend who initially purchased the stock three years ago,your purchase of the stock represents a transaction in the primary financial market
A)True
B)False
Q2) An increase in liabilities will reduce a firm's net worth.
A)True
B)False
Q3) The financial statements of firms generally are audited by
A) employees of the firm being audited.
B) employees of private accounting firms.
C) employees of the federal government.
D) the board of directors of the corporation being audited.
Q4) A partnership is ________ type of business.
A) the most common
B) the least common
C) the least risky
D) the most profitable
Page 10
Q5) How do unlimited and limited liability differ?
Q6) How does the principal-agent problem extend to managers and employees?
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Chapter 9: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) Selling a product at a price below its cost is known as dumping.
A)True
B)False
Q2) Refer to Table 9-6.All of the following are terms of trade that could possibly benefit both countries except
A) 1/5 of a hat : 1 clock
B) 1/3 of a hat : 1 clock
C) 1/2 of a hat : 1 clock
D) 3/4 of a hat : 1 clock
Q3) Many people assume that if child workers in developing countries weren't working in factories,they would be in school.In fact,children in developing countries
A) split their time evenly between work and school.
B) usually have few good alternatives to work.
C) are only allowed to work if they have attended school up to age 15.
D) who work are relatively rare, as most do attend school full time.
Q4) A tariff is a numerical limit on the quantity of a good that can be imported. A)True B)False
Q5) What is a tariff?
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Chapter 10: Consumer Choice and Behavioral Economics
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Sample Questions
Q1) Sunk costs
A) are costs associated with repairing something you already own.
B) are important for optimal decision making.
C) are costs that have already been paid and cannot be recaptured in any significant way.
D) are costs that firms sink into marketing.
Q2) Economists Robert Jensen and Nolan Miller reasoned that to be a Giffen good,with an income effect larger than its substitution effect,a good must be ________ and make up a ________ portion of a consumer's budget.
A) a normal good; very small
B) an inferior good; very small
C) a normal good; very large
D) an inferior good; very large
Q3) The demand for a Giffen good slopes upward.
A)True
B)False
Q4) Economists assume people's tastes are identical.
A)True
B)False
Q5) What is a Giffen good?
13
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Chapter 11: Technology, production, and Costs
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Sample Questions
Q1) Average total cost is equal to average variable cost minus average fixed cost.
A)True
B)False
Q2) Refer to Figure 11-17.Assume that production isoquants are convex.Total cost and output produced must increase for each of the following movements except one.Which movement is the exception?
A) point a to point b
B) point a to point c
C) point b to point c
D) point b to point d
Q3) If marginal product is equal to average product,then total product is at a maximum.
A)True
B)False
Q4) Refer to Figure 11-7.When the output level is 100 units average fixed cost is
A) $10.
B) $8.
C) $5.
D) This cannot be determined from the diagram.
Q5) State the law of diminishing marginal returns.
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Chapter 12: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) Refer to Figure 12-5.The figure shows the cost structure of a firm in a perfectly competitive market.If the firm's fixed cost increases by $1,000 due to a new environmental regulation,what happens to its profit-maximizing output level?
A) It increases.
B) It decreases.
C) It remains the same.
D) It could increase, decrease or remain constant, depending on whether the firm is able to cut costs somewhere else.
Q2) Refer to Figure 12-1.If the firm is producing 700 units,what is the amount of its profit or loss?
A) loss of $280
B) loss equivalent to the area A
C) profit equivalent to the area A
D) There is insufficient information to answer the question.
Q3) Profit is the difference between
A) marginal revenue and marginal cost.
B) total revenue and variable cost.
C) total revenue and total explicit cost.
D) total revenue and total cost.
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Page 15
Chapter 13: Monopolistic Competition: the Competitive
Model in a More Realistic Setting
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Q1) In what way does long-run equilibrium under monopolistic competition differ from long-run equilibrium under perfect competition?
A) Firms in perfect competition achieve productive and allocative efficiency while firms in monopolistic competition achieve neither allocative nor productive efficiency.
B) The only difference is that in a monopolistically competitive market there are many brands to choose from while in a perfectly competitive market there is one standard product.
C) Firms in perfect competition achieve productive efficiency while firms in monopolistic competition achieve allocative efficiency.
D) Firms in perfect competition achieve allocative efficiency while firms in monopolistic competition achieve brand efficiency.
Q2) Refer to Figure 13-10.to answer the following questions.
a.What is the profit-maximizing output level?
b.What is the profit-maximizing price?
c.At the profit-maximizing output level,how much profit will be realized?
d.Does this graph most likely represent the long run or the short run? Why?
Q3) Why are many companies concerned about brand management?
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Page 16
Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Sample Questions
Q1) Refer to Figure 14-2.If the government delays Gigacom's entry and Xenophone moves first,what is the likely outcome in the market?
A) Both offer internet service via cable line; Xenophone earns a profit of $6 million and Gigacom earns a profit of $9 million.
B) Both offer DSL internet service; Xenophone earns a profit of $8 million and Gigacom earns a profit of $7 million.
C) Xenophone offers DSL internet service and earns a profit of $5 million while Gigacom offer internet service via cable line and earns a profit of $6.5 million.
D) Xenophone offers internet service via cable line and earns a profit of $4 million while Gigacom offers DSL internet service and earns a profit of $4.5 million.
Q2) What is meant by the term "government-imposed barrier to entry"? Why would a government be willing to impose barriers to entering an industry?
Q3) Why do economists refer to the pricing strategies of oligopoly firms as a prisoner's dilemma game?
Q4) What is an oligopoly? Give two examples of oligopolistic industries in the United States.
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Page 17
Chapter 15: Monopoly and Antitrust Policy
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Sample Questions
Q1) Unlike a perfect competitor,a monopolist faces the market demand curve.
A)True
B)False
Q2) Refer to Figure 15-12.If the firm maximizes its profits,the deadweight loss to society due to this monopoly is equal to the area
A) ABF.
B) ABEG.
C) ACE.
D) EFG.
Q3) If a firm's average total cost is less than price where MR=MC,
A) the firm should shut down.
B) the firm should raise its price.
C) the firm should continue to produce the output it is producing.
D) the firm should cut back on its output to lower its cost.
Q4) A merger between firms at different stages of production of a good A) is a vertical merger.
B) was made illegal by the Sherman Act.
C) was made legal by the Clayton Act.
D) is a horizontal merger.
Q5) What happens to a monopoly's revenue when it sells more units of its product?
Page 18
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Chapter 16: Pricing Strategy
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Sample Questions
Q1) In an optimal two-part tariff pricing schedule,consumer surplus is zero.
A)True
B)False
Q2) Many golf courses charge members an annual membership fee as well as a fee each time they golf.One reason for this is
A) golf courses do not want their members to overuse their fairways. Charging for each round of golf played reduces fairway maintenance costs.
B) charging both fees allows the courses to transfer more consumer surplus into profit than charging only an admission fee.
C) charging both fees allows the courses to transfer more producer surplus into profit than charging only an admission fee.
D) research has shown that charging both fees increases the likelihood that golfers will renew their memberships.
Q3) What is odd pricing? Why do some merchants use odd pricing?
Q4) In a perfectly competitive market,in the long run,arbitrage profits will be bid away.
A)True
B)False
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Chapter 17: The Markets for Labor and Other Factors of Production
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Sample Questions
Q1) Which of the following best explains why unemployment rates are higher in the European economies than in the United States?
A) More Europeans go to school fulltime and are therefore not able to participate in the labor market.
B) Unemployment benefits are more generous in Europe than in the United States.
C) Workers in Europe are less productive than workers in the United States.
D) European industries pay a lower wage rate than industries in the United States.
Q2) Refer to Table 17-1.If the output price is $3,what is the marginal revenue product of the fifth unit of labor?
A) $1,050
B) $360
C) $210
D) $150
Q3) The primary purpose of labor unions is to
A) ensure that workers receive adequate safety training.
B) ensure that all members earn identical incomes.
C) negotiate with employers about wages and working conditions.
D) endorse candidates and donate money to them.
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Chapter 18: Public Choice,taxes,and the Distribution of Income
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Sample Questions
Q1) Policymakers focus on marginal tax rate changes when making changes in the tax code because the marginal tax rate
A) determines how tax revenue will change as national income increases.
B) affects people's willingness to work, save, and invest.
C) always equals the average tax rate which is harder to measure.
D) determines how much revenue the government will have to spend.
Q2) When the demand for a product is less elastic than the supply
A) consumers pay the majority of the tax on the product.
B) firms pay the majority of the tax on the product.
C) firms pay the entire tax on the product.
D) consumers pay the entire tax on the product.
Q3) Which of the following is the largest source of revenue for the U.S.federal government?
A) the individual income tax
B) social insurance taxes
C) sales taxes
D) property taxes
Q4) What is the difference between the voting paradox and the Arrow impossibility theorem?
Q5) What is a Lorenz curve and what is a Gini coefficient?
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